County follows money trail to missing sales tax

October 14, 2011
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El Paso County has recouped $1.3 million in missing sales tax revenue, following a multi-year investigation of the state’s collection of the county’s 1 percent sales tax, according to Nicola Sapp, budget officer.

The money has been returned to the county and has become part of its reserves. Another $830,000 has been referred for audit.

“This has been a huge undertaking,” Sapp said, “but it’s obviously paid off.”

Local voters approved a 1 percent sales and use tax on automobiles and building materials in 1988. By law, the state collects the revenue and remits it back to the county monthly.

County officials began suspecting something was wrong with the amount of tax revenue they were receiving from the state but were unable to prove their suspicions until voters approved a 1 percent local tax for road construction and maintenance in 2004.

That gave the county comparative data, Sapp said.

What officials discovered: “The numbers were off.”

To the tune of $6 million between 2005 and 2009.

That launched an exhaustive process to determine whether the discrepancies were valid and what was causing the problem.

“We didn’t know the source,” Sapp said. “But the further we dug, the bigger the discrepancies got.”

In 2007, the county informed the state of an analysis it had done that showed some vendors didn’t pay the county tax but did pay the transportation tax, or paid both but paid more to transportation. 

“The variances between what we were getting and what Pikes Peak Rural Transportation Authority was getting didn’t pass the common-sense test,” Sapp said

The state agreed to work on remedying the situation and sent self-audit letters to the county’s 14,000 vendors, advising them of potential reporting errors. 

That netted $212,000 in tax revenue owed to the county.

A part-time state employee began further researching collections, but in 2008, the position was cut. In 2009, El Paso County hired a part-time employee to continue the investigative efforts.

Sapp said the county pays the retired state employee, who is stationed at the state’s Department of Revenue three days a week, about $30,000 a year.

“We began to identify state posting errors through manual data entry, where our collections would be posted to another entity, or the vendor provided the wrong information, and the state didn’t catch it,” Sapp said.

The county has recovered $1.3 million so far and has 27 additional audits totaling $830,000 pending with the state, she said. Discrepancy reports for last year and this year are yet to come.

“We’re happy to hear it’s working out well for the county. We think this is a good partnership for everyone,” said Mark Couch, spokesman for the Colorado Department of Revenue. The state has completed a massive upgrade of its computer system, converting from paper files and manual data entry to a new electronic system, he said.

Online filing of sales tax collections and software designed to automatically flag errors are helping improve the process, Sapp said.

“More accurate reporting is decreasing the discrepancy amount,” she said.

Douglas County also has a setup similar to El Paso County’s, in which a county employee checks state records for anomalies.

The result: About $200,000 a year, on average, has been recovered since 1996, when voters approved a 1 percent county sales tax for roads and bridges, a justice center and open space, said Douglas County spokeswoman Wendy Holmes.

“We got real proactive and, with the help of on-staff sales tax specialists and proprietary software that we developed in-house, have recognized discrepancies,” she said.

The software provides historical data on what the state has collected and distributed and tracks delinquent payments from vendors, said Martha Marshall, budget manager.

“Almost anything you can think of can happen” she said, including vendors collecting sales tax but not turning it in to the state.

Sapp said the undertaking by both counties wasn’t done to “point fingers at the state.”

“They didn’t have the resources to do what we did,” she said.

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